The impact of board nationality, gender and race diversity on company performance

Abstract:

Controversy lingers in academic circles surrounding the merit that diversity brings
to an organisation s board directorate construct, particularly the influence it has
on firm performance. Director fiduciary responsibilities prescribe the provision of
direction and governance, representative of and accountable to, company
shareholders and its stakeholders. The question then avails itself, if the extent
of board diversity, in respect to human and social capital, facilitates enriched
decision-making through varied experience and backgrounds to proficiently serve
their constituency, and if positive, have organisations reaped the improved
benefits owing to the positive effect expected of diversity through
desegregation?
This research report was conducted with the intention of understanding the
effects of board composition diversity on company performance. The research
commenced with a robust interrogation of literature exemplifying diversity, in
particular, that of board diversity and its impact on company performance. A
quantitative methodology was employed in the evaluation of company
performance relative to the level of diversity of the board. The ratios, Return on
Assets (ROA), Return on Equity (ROE) and Tobin s q, were employed to assess
both financial and market performance across 130 companies listed on the
Johannesburg Stock Exchange, for the 2014 financial year. The attributes of
diversity in this analysis embodied nationality, gender and race.
The findings show that board diversity has an impact on company performance
and that the full benefits thereof have not yet been realised. Diversity is an
enabler of company performance yet the status quo of homogenous board
directorates is evident in the minimal female representation on company s boards
within South Africa, demonstrating the slow adoption of change. Quotas imposed
upon companies impede the benefits of diversity as in certain instances, this is
seen as window dressing and is not embraced in the spirit in which it was
intended. This paper, however, does not paint a picture of doom and gloom but
instead shows diversity as being positive and encourages the early adoption
thereof, specifically within a South African context.